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Thursday, October 30, 2008

Third Quarter GDP declines (barely), and no recession yet. But, the MSM see it quite differently.

The advance estimate of the change in 3rd Quarter GDP came out this morning (from the U. S. Commerce Department) and it is a somewhat undramatic 0.3 % decline. Think about it, folks, the definition of a recession in the U.S. is two consecutive declines in real output (Goods and services produced in the U.S.), i.e., Gross Domestic Product, or GDP. GDP increased at 0.9 % during the first quarter of 2008 and at 2.8% during the second quarter. So, despite all the hand wringing by the MSM earlier this year, no recession.

Now, we find the decline of GDP during the last quarter-- a quarter stung by one financial sector crisis after another:a limited bail-out of Bear Stearns, a Lehman Bros. bankruptcy, an AIG bailout, a bailout of Fannie Mae and Freddie Mac, a merger of Merrill Lynch into Bank of America and a 700 billion dollar bailout of various financial institutions—is all of 0.3 per cent. Think about that number. There only two smaller numbers that could have been read as putting the U. S. on it’s way to a recession. 0.1 and 0.2. So, the U. S. economy came out at a 0.3% decline. The number could have been, say, a 2% decline or a 4% decline. Instead, the U. S. had a 0.3 % decline. And, this in the face of about a 35% decline in the Dow Jones Industrial Average over the last year.

Is the stock market predicting a significant decline in GDP over the next year or two? It would seem so. But, the GDP estimate for the last quarter simply doesn’t bear that out. That is what the economists surveyed should have said.

But, take a look instead at what was said. We have a collection of comments from “self-identified economists,” that “the sky is falling.” Remember, these folks could be people who took two courses in economics and flunked them both. Or maybe they majored in Soviet economics or urban economics. Or, maybe they got a Ph. D. in economics from Oklahoma State. Take it from this reporter who has forgotten more macroeconomics than most of the “commenters,” will ever know: these folks have absolutely no idea what they are talking about.

Will we suffer a dramatic decline in 4th quarter GDP, and learn of that in late January, 2009, confirming we are in a recession? Could very well be. The Masters of the Universe: President Bush, the Democratic led, Pelosi-Reid Congress; moderate Republican Harvard MBA, Treasury Secretary Hank Paulson; liberalMIT trained in economics, former Princeton faculty member and Fed Chief Bernanke have led the country down the path of a 700 billion dollar, wasteful government bailout.

The 700 billion dollar bailout purported to deal with a mortgage mess very much caused by quasi-governmental entities Fannie Mae and Freddie Mac, and their angels: House Financial Services committee Chairman, Cong. Barney Frank(D-MA), Senate Banking Committee Chairman Senator Chris Dodd (D-CT) and others too timid or self interested to deal with Fannie and Freddie. All of those pols, entities and their CEOs stimulated mortgages for many who simply couldn’t afford them and then facilitated their packaging into “insecure,” securities that would eventually weaken the balance sheets of many financial institutions.